In June of this year significant amendments to the Canadian International Trade Tribunal Procurement Inquiry Regulations ("Regulations") for the Canadian International Trade Tribunal ("Tribunal") came into force. These changes are described as part of Canada's ongoing response to restrictive trade practices of its trading partners that began during the COVID-19 pandemic and remain front and centre with the current U.S. Administration's U.S.-centric policies.
However, certain aspects of the amendments do not support a response to restrictive trade practices and instead fetter the Tribunal's discretion by implementing additional thresholds for conducting inquiries, limiting compensation and remedies the Tribunal may recommend, and seeking to insulate Canada's acts and omissions from review.
We explain the amendments and steps suppliers should take to best preserve their interests below.
Additional Condition for Inquiries
Previously, the Regulations required two conditions to launch an inquiry (that the complainant be a potential supplier and that the complaint relates to a designated contract). The amendments add twoadditional conditions:
- The Tribunal is able to determine (at least preliminarily) that the procurement has not complied with the provisions of an applicable trade agreement; and
- Where the solicitation restricts the origin of goods or services, the complainant must have offered goods or services from that jurisdiction (or a jurisdiction to which a trade agreement applies).
What this means:
A strict application of these new conditions may risk the premature dismissal of otherwise valid complaints on technical grounds. It may ultimately be necessary to balance the new requirements against considerations of fairness and the principles of natural justice, which underpin the Tribunal's procedural and legal framework.
The practical application of the origin restriction remains uncertain in the procurement context. Depending upon how they are applied, rules of origin may themselves breach trade agreement obligations1.
Limiting Cost Recommendations For Successful Complainants
Until these regulatory amendments, the Tribunal held the discretion to recommend various remedies for successful complainants. This has now changed2.
- Compensation awards are now limited to:
o Lost profits: capped at 10% of the complainant's bid price, if the complainant should have been awarded the contract; or
o Lost opportunity: capped at 10% of the bid price of the awarded contract divided by the number of potential suppliers, if it cannot be determined whether the complainant should have been awarded the contract.
o Bid preparation costs, if awarded, are capped at 2% of the complainant's bid price, and are not awarded "unless the response was compliant."
- The Regulations now officially provide that if bid preparation costs are awarded, recommendations to compensate the complainant, re-evaluate the complainant's bid, or award the contract to the complainant are not permitted.
- If a contract has already been awarded to another entity and the Tribunal recommends that the successful complainant be awarded the contract, it must also recommend, in the alternative, that the government institution pay compensation to the complainant, thus permitting Canada to select the option it prefers – to award the contract to the successful bidder or pay compensation.
What this means:
Compensation recommendations are now an "either/or" proposition for the Tribunal – if bid preparation costs are recommended, the Tribunal may not recommend re-evaluation, contract award, or additional compensation (including lost opportunity or lost profits). If the Tribunal recommends re-evaluation or contract award to the successful complainant, it cannot also recommend costs (except as noted above).
The regulations expressly exclude from the calculation of compensation the value of any contract options or extensions.
Finally, the amendments also formalize how litigation costs are recommended3.
New Definitions
The Regulations provide definitions for "procurement process" and "potential suppliers".
A "procurement process":
- Starts when a government institution identifies a need; and
- Ends when the contract is awarded; and
- Does not include actions taken or not taken by a government institution if it discovers after awarding the designated contract that the winning bid contained incorrect or incomplete information.
What this means:
The starting and ending point of the procurement process provided in the new definition is consistent with current Tribunal practice and mirrors the definition of "procurement process" in the Canada-European Union Comprehensive Trade Agreement ("CETA")4. However, the additional proviso – that a procurement process does not include the government's acts (or failure to act) if they discover bid irregularities following contract award – raises concern that the amendment shifts the government's due diligence obligations onto bidders. It may also motivate public officials to turn a 'blind eye' to bid irregularities or not conduct proper due diligence of bids during the evaluation process, thereby shielding the procurement from the Tribunal's oversight.
"Potential supplier(s)" who may file a complaint must:
- Be based in Canada or a country with an applicable trade agreement; and
- Be an actual or prospective bidder who submitted a bid directly.
What this means:
Only bidders from qualifying jurisdictions can bring complaints. This reflects both general trade agreement intent and the Tribunal's interpretation of "potential supplier", and clarifies that a bidder's subcontractors or entities that did not submit a bid are not considered a "potential supplier".
Due Diligence – Heightened Requirements For Suppliers
In light of the amendments, suppliers should:
- Carefully review all documents: Examine solicitation documents for origin restrictions, eligibility terms and other requirements and consider whether such restrictions are reasonable or necessary, and in compliance with trade law. Pay particular attention to any rules of origin and whether they are a disguised restraint on trade and whether it is even possible to meet restrictions.
- Retain key records: Maintain bid documents and communications with the contracting authority to ensure a proper and complete record for any complaint.
- Act promptly: Raise concerns during the procurement process and before contract award. Actively seek clarifications and pursue responses if the contracting authority is non-responsive or does not provide a fulsome response. As has always been the case and more so now, a "wait and see" attitude with respect to a procurement complaint could result in the expiration of a limitation period for bringing a complaint[v].
- Confirm eligibility: Be prepared to clearly demonstrate, at the outset of the complaint, that all jurisdictional and eligibility requirements are met. If it is apparent that any other bidder cannot meet the requirements, this must be raised before the contract is awarded to ensure the jurisdiction of the Tribunal is preserved (e.g., placing the government buyer on notice).
- Seek legal advice early: Engage counsel during the bid period when concerns arise. Legal guidance will be critical to ensure jurisdictional standing, interpret origin restrictions, identify the applicable trade agreement provisions, and structure a timely, properly grounded complaint.
Understanding this most recent "Canadianization" approach will be critical to successful bidding for federal opportunities.
Footnotes
1. See our bulletin on the Interim Procurement Policy for further information.
2. Despite the Regulatory Impact Analysis Statement (RIAS) indicating extensive consultations with the public, industry, provinces and territories with respect to reciprocal trading partner considerations, we noted no publicly available reports that supported these cost recommendation limitations.
3. Presently, the maximum tariff is $4700 for a Level 3 Complexity procurement.
4. The Canadian Free Trade Agreement ("CFTA") does not contain a definition of "procurement process".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
